Indian Cold Chain Industry

Modernization of the Cold Storage

Infrastructure
 Modernisation of the Cold Storage Infrastructure

CONTENTS

EXECUTIVE SUMMARY _________________________________________________________________________________________________________ 2

INDIA’S COLD CHAIN INDUSTRY _____________________________________________________________________________________________ 3

COLD CHAIN INDUSTRY STRUCTURE _______________________________________________________________________________________ 4

INDIAN WAREHOUSING MARKET OVERVIEW ______________________________________________________________________________ 6

THE CURRENT STATE OF FOOD PRODUCTION & WASTAGE IN INDIA _________________________________________________ 8

COLD CHAIN STORAGE CRITICAL TO PHARMA INDUSTRY __________________________________________________________ 10

GOVERNMENT INITIATIVES __________________________________________________________________________________________________ 13

ONICRA’S OUTLOOK ON SMES IN INDIA _________________________________________________________________________________ 14

CHALLENGES FORESEEN BY ONICRA FOR COLD CHAIN INDUSTRY _________________________________________________ 16

OUTLOOK_______________________________________________________________________________________________________________________ 17

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 Modernisation of the Cold Storage Infrastructure

EXECUTIVE SUMMARY

Cold chains are essential for extending the shelf life, period of marketing, avoiding over
capacity, reducing transport bottlenecks during peak period of production and maintenance
of quality of produce. The development of cold chain industry has an important role to play in
reducing the wastages of the perishable commodities and thus providing remunerative prices
to the growers. Also, it acts like a backbone for pharma industry and helps to maintain the
efficacy of the drug throughout the supply chain by providing temperature controlled
environment to sensitive pharma products.

With the growth on the domestic manufacturing and retail segments, the demand for efficient
warehouse management service has improved. Despite of the growing demand,
warehousing continues to see little investment. Current spending on organized warehousing in
India constitutes 9 percent of total logistics spending, as against 25 percent in the US.

According to the World Bank’s 2014 Logistics Performance Indicator, India is ranked 54th and is
behind countries such as Japan, the United States, Germany and China. Logistics costs
account for around 6-10 percent of average retail prices in India as against the global
average of 4-5 percent. Therefore, there is a clear scope to improve margins by 3-5 percent
by improving the efficiency of the supply chain and logistics processes. Developing an
integrated supply chain, including cold chain can save up to `300 billion annually and at the
same time reduce the wastage of perishable horticulture produce. It is worth noting that the
price of vegetables, fruits, milks and eggs, meat and fish have been rising faster in spite of the
fact that India is the second highest producer of fruits and vegetables. This is led by
inadequate supply chain and logistics infrastructure and management.

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 Modernisation of the Cold Storage Infrastructure

INDIA’s COLD CHAIN INDUSTRY

The cold chain involves the transportation of temperature sensitive products along a supply
chain through thermal and refrigerated packaging methods to protect the integrity of these
shipments. There are several means in which cold chain products can be transported,
including refrigerated trucks and railcars, refrigerated cargo ships as well as by air cargo.

India's integrated cold chain industry - a combination of surface storage and refrigerated
transport - has been growing at a CAGR of ~20 percent for the last three years. The cold chain
market in India is anticipated to reach `624 Billion by 2017.

Figure 1: Growth of the Indian Cold Chain Industry

Highlights of Cold Chain Storages in

[CAGR 26%] [CAGR 13.4%] India
700 47 50
624 Currently, India has 6,300 cold storage
42 45
600 facilities unevenly spread across the
37 40 country, with an installed capacity of
497
500 33 30.11 million metric tonnes
35
29
26 389 30 ? Organized players contribute only
400
23 ~8%–10% of the cold chain industry
25 market
20 298
300 17 20 ? ~36% these cold storages in India
228
have capacity below 1,000 MT
200 175 15
134 ? 65% of India’s cold chain storage
115 10 capacity is contributed by the
98
100 states of Uttar Pradesh and West
5
Bengal
0 0 ? With the current capacity only less
2009 2010 2011 2012E 2013F 2014F 2015F 2016F 2017F
than 11% of what is produced can
INR Billion Million Tonnes
be stored

Source: National Summit on Cold Chain: ASSOCHAM & Tech Sci Research

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 Modernisation of the Cold Storage Infrastructure

COLD CHAIN INDUSTRY STRUCTURE

Cold chain infrastructure includes cold storage infrastructure, transport infrastructure and point
of production infrastructure. There are approximately 6300 cold storages in India designed
originally for single commodity storage. Refrigerated transport or cold chain distribution is still in
its nascent stage in India and is way behind if compared to world standards for cargo
movement. Presently reefer transport business in India is estimated at `10-12 billion which
includes reefer transportation demand for both exports and domestic.

Cold Chain Segments

12%

Storage
Transport

88%

Various industries covered under cold chain are agriculture, horticulture & floriculture, dairy,
confectionery, pharmaceuticals, chemicals, poultry, etc. India has around ~6300 cold storage
units, but can only store less than 11percent of the country's total produce. While ~105mn MT
of perishable produce is transported across India annually, only ~4mn MT is transported via
reefers.

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 Modernisation of the Cold Storage Infrastructure

With initiatives by the Indian government and a steep growth in the consumption of processed
foods, cold chain logistics is expected to witness huge growth in the coming years. High
growth prospects for the food-processing sector along with attractive government incentives
(including 51 percent FDI) make cold chain business a lucrative proposition for foreign
investors as well. It should be specifically mentioned that a large number of cold storage
projects, located in different parts of the country, are based on old and inefficient technology.
The user industry would expect modern plants with more automation, mechanised operations
and operating conditions that are more hygienic. Currently, one of the focus areas is to make
reefer trucks more energy efficient to withstand the variations in the ambient temperatures at
drop-off points.

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 Modernisation of the Cold Storage Infrastructure

INDIAN WAREHOUSING MARKET OVERVIEW

Indian warehousing market has evolved from traditional transport companies to full-fledged
logistics service provider. The economic environment in India has been pushing the demand
for services such as warehousing, transportation, express cargo delivery, shipping services,
container services, etc. as the freight volume is increasing significantly. In India, logistics is a
critical factor for the growth of agriculture, manufacturing and service sectors and even in
future, the growth of all these sectors would be impacted by the availability of logistics.

Warehousing plays a vital role in the complete value chain and forms approx. 20 percent of
the total logistic market. Over the time and with the changing role of the sector, traditional
warehouses have transformed to collection and storage points, where raw material,
intermediate and manufactured goods are collected, assorted, stored and distributed to the
point of consumption/sale. The warehousing market in India is expected to grow at a rate of
35 to 40 percent annually, displaying high potential for growth over the next few years.
Currently, the sector is highly fragmented with small players holding small units distributed
across states with many challenges. Almost 92 percent of the market is dominated by
unorganised players, while 70 to 75 percent of the organised market is being controlled by
Public Sector Undertakings (PSUs) such as Central Warehousing Corporation (CWC), the Food
Corporation of India (FCI) and State Warehousing Corporations (SWCs).

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 Modernisation of the Cold Storage Infrastructure

Warehouse Public Warehouse: Public warehouses are licensed by government to private

players, individuals or co-operative societies to store goods of the general public.
Public They are rented out against a fee and are generally located near railways,
highways, ports, etc.

Private Private Warehouse: These warehouses are owned by the private entities and are
used to store goods owned, imported on behalf of the license. They are located at
Bonded strategic locations and are flexible enough for the storage of different nature of
products.

Government Bonded Warehouse: These are the types of warehouse in which dutiable goods
are deposited until duty is paid or the goods are cleared for export. These
Cooperative warehouses are owned managed and controlled by both government and
private entities and are established near ports so that the goods are stored until
OFS/ICDs the custom duties are paid off.

Co-operative Warehouse: these are owned managed and controlled by co-

Cold Chain operative societies. They provide their members with warehouse facilities at
cheaper rate.

OFS/ICDs: A common user facility with public authority status equipped with fixed
installations and offering services for handling and temporary storage of
import/export laden and empty containers carried under customs control

Cold Storage: Cold chain is a logistic system that provides a series of facilities for
maintaining ideal storage conditions for perishables from the point of origin to the
point of consumption in the food supply chain

The current capacity of the organised warehouses, controlled by corporates, cooperative and
private sectors, is 108.75 million metric tonnes (MT), of which the private sector has only 18
million MT, while Public Private Partnerships (PPP) are yet to start off in the sector.

Table 1: Storage Capacity of the Organised Warehouses in India

S. No. Name of the Organisation/ Sector Storage Capacity (In Million MT)

1 Food Corporation of India (FCI) 32.05

2 Central Warehousing Corporation (CWC) 10.07
3 State Warehousing Corporations (SWCs) 21.29
4 State Civil Supplies 11.30
5 Cooperative Sector 15.07
6 Private Sector 18.97

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 Modernisation of the Cold Storage Infrastructure

THE CURRENT STATE OF FOOD PRODUCTION & WASTAGE IN INDIA

India is bestowed with a varied agro climatic conditions which are highly favourable for
growing a large number of horticulture crops such as vegetables, fruits, aromatic plants, herbs
and spices, etc. India is among the foremost countries in horticulture production, just
behind China. However, despite the rise, India is way behind its nearest rival in per-hectare
yield and processing of horticulture products. India stores only two percent of its horticulture
products in temperature-controlled conditions, while China stores 15 percent and Europe and
North America stores 85 percent of their products in such conditions. Adequate cold storage
facilities are available for just about 10 percent of India’s horticulture production. Of the total
annual production, 30-40 percent is wasted before consumption. During the peak production
period, the gap between the demand and supply of cold storage capacity is approx. 25
million tonnes.

Table 2: The total production of fruits and vegetables in the country during the last three years1
Production (in Million MT)
2010-11 2011-12 2012-13(prov.)

Vegetable 146.55 156.32 159.51

Fruits 74.87 76.42 77.70

Although cold storage capacity of over 30 million tonnes has been created in the country, the
concept of cold-chain is still in its infancy in India. Considering the fact that India is producing
about 270 million tonnes of horticulture produce every year, the development of cold-chain
networks assumes high priority. Owing to the tremendous pressure on improving supply chain
and reducing losses during produce handling and movement, the need for creation of a cold
chain network is crucial for perishable food commodities.

Regionally, the existing cold storage capacity is concentrated in terms of both number and
capacity in the northern region. Uttar Pradesh and West Bengal contain over 65 percent of the
cold storage units in the country and the rest are spread across India.

1 http://pib.nic.in/newsite/PrintRelease.aspx?relid=101875

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 Modernisation of the Cold Storage Infrastructure

Table 3: Region wise Number and Capacity of Cold Storages in India (2011)
East/North
Central East North South West All India
430 975 2895 866 990 6156
Number (7.0%) (15.8%) (47.0%) (14.1%) (16.1%) (100%)
Capacity 1.71 7.82 14.95 1.95 2.25 28.68
(Million MT) (6.0%) (27.3%) (52.1%) (6.8%) (7.9%) (100%)
Cold storage in India has been largely adopted for long-term storage of potatoes, onions and
high value crops like apples, grapes and flowers. 75 percent of the cold storage capacity is
used to store potatoes, while only 23 percent fall in the multi-product category. Cold storages
for meat, fish and dairy items and for other items such as chilies and other spices account for
only 1 percent of total cold storage capacity. These cold storages are also usually smaller in
capacity. Much of this multi-purpose cold storage capacity is located in the states of
Karnataka, Maharashtra, West Bengal, Tamil Nadu and in the National Capital Region (NCR).

Table 4: Commodity Wise Break up of Cold Storages (as on 31st Dec 2009)
Capacity
Commodity (Million MT) % of Total No. of Cold Storages
Potato 18.43 75.4 2862
Multi-Purpose 5.64 23.1 1584
Fruits & Vegetables 0.10 0.4 160
Meat & Fish 0.19 0.8 497
Milk/ Milk Products 0.07 0.3 191
Others 0.03 0.1 87
Total 24.46 5381

Source: Ministry of Agriculture, Government of India

Further enhancement in the cold storage capacity would be very beneficial to both the
farmer and the consumer as it minimizes wastages and provides fresher and off-seasonal food
items to the consumers.

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 Modernisation of the Cold Storage Infrastructure

COLD CHAIN STORAGE CRITICAL TO PHARMA INDUSTRY

Pharmaceutical companies are increasingly relying, and spending, on cold-chain storage as

temperature sensitive drugs are becoming more prevalent. The demand for generic drug in
emerging markets such as India, China and Brazil are expected to increase the need for low
temperature handling and transportation facilities. As a result, it is estimated that the value of
generic drug that require cold-chain storage will exceed `7200 billion by 2018.

2500
Indian Pharmaceutical Industry (INR Billion)
2202
Exports
1944
2000 Total
1704
1482
1500
1290
1104
1002
936
1000 804 810
690 630
498
432
500 366
294 294
222

0
2007 2008 2009 2010 2011 2012 2013 2014E 2015F

Cold chain for pharmaceuticals needs to be temperature controlled as the shelflife of the
products needs to be maintained. A well-organised cold chain system has the capability of
reducing the deterioration of drugs as well as retaining the quality of the product. The cold
chain segment is of critical importance as the pharmaceutical compounds being exported
have the likelihood of getting damaged with excessive heat or freezing during shipment,
resulting in reduced efficacy.

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 Modernisation of the Cold Storage Infrastructure

INDUSTRY GROWTH DRIVERS

Growth in Organised Retail: Over the last few years, organised retail and food service industries
have emerged as new segments of cold chain, mainly due to the changing consumption
pattern. With the entry of big corporate into retailing, the supply chain including cold chain for
food and beverages distribution is expected to get streamlined. India would be in need of
over 33 million tonnes of cold storage capacity to be added in the next four years, with
investment requirement of about `3,000 crore per annum. There is an increasing demand not
only for capacity addition of cold storage facilities for a set of highly perishable products, but
also for a wide variety of vegetables, fruits and grains.

Growth in End user segments (food processing, horticulture): As of 2013, India ranks 5th in the
world in terms of the value of food processing. The industry is expected to grow to `126,840
crore by 2016, growing at 13 percent each year since 2012. The industry is critical from the
economic point of view and hence the government has its focus on the development of this
industry. With the growth in this end user segment, cold chain infrastructure is expected to get
a boost and help in reducing the wastage.

Government Initiatives: The government is taking steps for the sector, such as schemes for
capital investment subsidy from the National Horticulture Board (NHB), the National
Horticulture Mission (NHM) and the Ministry of Food Processing Industries (MoFPI) for the agri-
investors to set up cold chain infrastructure. Government has as well set up National Centre for
Cold Chain Development (NCCD) which would help in establishing building standards through
international benchmarking and to promote research and development activity in the cold
chain sector. The government has also established partnership with Indian Railways to set up
cold chain infrastructure.

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 Modernisation of the Cold Storage Infrastructure

Demand from the Pharmaceutical Sector: India is among the top five emerging pharma
markets and has grown at an estimated compound annual growth rate (CAGR) of 13 percent
during the period FY 2009–2013. The Indian pharmaceutical market is poised to grow to `3300
billion by 2020 from the 2009 levels of `756 billion. The ever-growing pharmaceutical industry is
acutely temperature and time sensitive. Cold supply chain acts like a backbone for pharma
industry. It is a big responsibility to have a regulatory supervision and to maintain the efficacy
of the drug throughout the supply chain in order to main the quality of drugs and comply with
statutory requirements.

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 Modernisation of the Cold Storage Infrastructure

GOVERNMENT INITIATIVES

The Department of Agriculture and Cooperation is endeavouring to strengthen the supply

chain infrastructure including cold chains through various schemes. Some of the most
prominent schemes are National Horticulture Mission (NHM) – a centrally sponsored scheme,
Horticulture Mission for North East and Himalayan States (HMNEH) – a central sector scheme
and National Horticultural Board (NHB) – central sector scheme.

National Horticulture Mission: The scheme would be covering following areas:

(i) Development of Commercial Horticulture through Production and Post Harvest

Management of Horticulture Crops;

(ii) Capital Investment Subsidy Scheme for construction/ expansion/ modernization of Cold

Storages/Storages of Horticulture Produce

(iii) Technology Development and Transfer for promotion of horticulture;

(iv) Market Information Service for Horticulture Crops; and

(v) Horticulture Promotion Service

National Centre for Cold Chain Development: NCCD has been mandated to

(i) Provide an enabling environment for the cold chain sector to gain prominence and

invite the much needed private sector involvement.

(ii) To establish standards and protocols related to cold chain testing, verification,

certification and accreditation as per international standards.

(iii) To provide technical assistance to Financial Institutions, Government Departments/

agencies, and industry for selection of cold chain component such as refrigeration
units, refrigerated transport equipment, display cabinets, milk tanker etc.
(iv) To offer HRD and technical advisory services to personnel engaged in this sector.

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 Modernisation of the Cold Storage Infrastructure

ONICRA’S OUTLOOK ON SMEs IN INDIA

Profit Margins Return on Capital Employed

35.00 7.60

30.00 30.55 7.44

32.26 7.40
25.00
7.20
20.00

In %
In %

7.00
15.00
6.80
10.00 6.76
6.60
5.00 2.11
2.99
6.40
0.00

FY12

FY13
FY12 FY13

EBITDA margin NP Margin FY12 FY13

Debt-Equity Ratio & Interest Coverage Ratio Current Ratio

1.31
7.00 6.63 1.31
1.30
6.00
4.72 1.29
5.00
1.28
4.00
Times

4.92
Times

1.27
3.00
3.35 1.26 1.26
2.00
1.25
1.00
1.24
0.00
1.23
FY12

FY13

FY12 FY13

Financial Years
Debt Equity Ratio Interest Coverage Ratio

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 Modernisation of the Cold Storage Infrastructure

High cost of borrowing is keeping the margins low –EBITDA margin of the company has
remained healthy in both the FYs under study. Power (electricity charges) and fuel forms one
of the major components of the cold chain industry along with labour and repair &
maintenance cost. High cost of borrowings has led to squeezing of the net profit margin.

Low returns generated by cold chain companies – Return on capital employed (ROCE) has
been low in both the FYs under study. Most of the companies operating in the cold chain
industry are capital intensive (cost of real estate and refrigeration equipments) and hence the
ROCE is low. Major part of the funding in the cold chain industry is done through debt funding
and this has resulted in heavy interest expenses. These interest expenses have had a negative
impact on the net profit generated by the company which has further impacted the return on
equity.

High dependence on borrowed funds and satisfactory interest coverage ratio – As can be
seen in the graphs above, the dependence on external borrowings has been high. Although a
decline can be seen in the gearing of company in FY13, yet it has remained high. However,
due to healthy EBITDA companies are able to have satisfactory interest coverage ratio in both
the FYs under study.

Current Ratio – Major part of the current assets have been tied up in advances to rentiers and
liability side comprised of sundry creditors for expenses and provisions. Current ratio of the
company has remained within the comfortable range in both the FYs under study.

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 Modernisation of the Cold Storage Infrastructure

CHALLENGES FORESEEN BY ONICRA FOR COLD CHAIN INDUSTRY

High Energy Costs: Operating costs for the cold storage business in India are approximately
`80-90 per cubic ft. per year as compared to `40 per cubic ft. per year in the West. Energy
expenses alone make up about 30 percent of the total expenses for the cold storage industry
in India compared to 10 percent in the West. These factors pose as a high entry barriers to
potential players in the business.

Rising Real Estate Costs: With the rising real estate price, the cost of setting up a cold storage
units is also rising. It constitutes approximately 10-12 percent of the project cost. Also, as these
units are not mobile, so choosing the right location becomes a critical factor. Being a capital-
intensive project, it requires heavy investment in fixed assets like plant and machinery, building,
insulation and panels. Depending on the size of the project and design of the infrastructure,
the Capex is derived. Typically, a traditional cold storage of multi-tier walk in with a capacity
of 6,000 tons would cost `5 crore, excluding land.

Uneven Distribution of Capacity: A majority of investment in setting up cold storages in India

has been in states like Uttar Pradesh, Maharashtra, Gujarat, Punjab and West Bengal. Further
on analyzing the commodity wise storage capacity it is found that major cold storages have
been set up to cater single commodities and this creates bottleneck for other perishable
commodities.

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 Modernisation of the Cold Storage Infrastructure

OUTLOOK

The cold chain industry is emerging as a fast-growing business sector in India, with
developments in the food processing sector, organized retail and government initiatives
driving growth. To develop a world-class cold chain infrastructure, government and industry
bodies need to work in collaboration to encourage the adoption of better and more efficient
refrigeration technologies that can prolong the shelf life of food products and bring
commensurate economic returns to the farmers.

India needs a more effective, efficient and well-thought-out cold storage infrastructure. The
technology of construction has undergone a phenomenal change from conventional brick-
wall construction to sandwich insulated panel and reinforced concrete (RCC) structures to
pre-engineered buildings (PEB) steel structures. Energy-efficient practices like energy recovery
systems, energy-efficient designs of refrigeration equipment and automation are some of the
innovative features. Efforts need to be made in order to introduce the concept of green
technology, as also the use of renewable energy for the cold chain sector. Special emphasis
needs to be laid on development of reefer infrastructure in view of India’s exports thrust and
potential.

Besides, to boost the investments, financial institutions should play a major role to encourage
the investment in cold chain industry in terms of term loan sanctioning, nominal interest rates
and disbursement. The growth cannot happen without their support. The state government
must make a step towards subsidising the electrical tariffs, encouraging use of renewable
energies, etc in order to boost the development of cold chain infrastructure in India.

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 Modernisation of the Cold Storage Infrastructure

REFERENCE

http://nhb.gov.in/

http://www.nccd.gov.in/AboutUs.html

http://www.emerson.com/en-IN/newsroom/news-releases/Pages/India-Food-Waste-and-
Cold-Infrastructure-Report.aspx

http://www.assocham.org/events/recent/event_822/Mr-Karan-Chechi.pptx

http://www.nccd.gov.in/PDF/NOCCD.pdf

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 Modernisation of the Cold Storage Infrastructure

CONTACT US

Shalu Malaviya

+91 1244125732

shalu.malaviya@onicra.com

HARYANA KARNATAKA MAHARASHTRA

Gurgaon Bangalore Mumbai

Corporate Office & Rating Office N-705, 7th Floor, North Block, 520, 5th Floor
5th Floor Manipal Centre Nirmal Corporate Centre,
47, Dickenson Road LBS Marg, Mulund (West)
Plot No, 21-22, Udyog Vihar
Bangalore – 560042 Mumbai – 400080
Phase-1V
India India
Gurgaon-122015,
India

GUJARAT WEST BENGAL UTTAR PRADESH

Ahmedabad Kolkata Noida

603, Aniket, Above Metro 3DNF, 3rd Floor, Jindal Tower, B10, Sector - 59
Showroom, Opp. Jain Derasar, C Block A, 21/1A/3, Darga Road, Noida – 201301
G Road, Navrang Pura, Kolkata - 700017 India
Ahmedabad-380009 India
India

TELANGANA TAMIL NADU

Hyderabad Chennai Lucknow

#7-1-28/12/1 Mercury, #25 Aman Palace, Purani
4th Floor, Serenity Plaza, Shyam Flowers Road, Level 2, Chungi, Kanpur Road
Karan Road, Near Andhra Bank, Kilpauk, Chennai – 600084 Lucknow
Ameerpet Branch, Ameerpet, India India
Hyderabad
India

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